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Trust has long been used by wealthy families as an instrument of reliable capital protection. Today trusts are mainly set up in offshores as these jurisdictions offer the best conditions, including taxation and confidentiality matters. And if you ask us if there is a more efficient instrument for asset protection in today’s world than a properly established trust, we would definitely say “No.”
Let’s choose a jurisdiction
The choice of jurisdiction is not that easy as you need a trust that fulfills your priority requirements. And this needs some thinking and preparation as you need to focus on the aims of trust creation. You will also need to study the legislation related to trusts in your country of residence and in the one where you intend to set up a trust.
You may need a consultant’s help. You can read the article on how to choose the best offshore trust country on our portal and find a suitable specialist for you there.
Anyway, if you choose just any offshore jurisdiction that comes to your mind, set up your trust there, and transfer your assets, it may not come up to your expectations at all. There are some questions to think about before you do anything, and here is an approximate list of these:
- You have certain purposes for establishing a trust. Do the laws of the offshore jurisdiction you are going to pick suit them perfectly well?
- What assets will be put in your trust? These may include capital, real property, valuable objects, inheritance, buildings, and more. If you have real estate, it will still be subject to the laws of the country where it is located rather than those of a jurisdiction where you establish a trust.
- Please calculate the total cost of the assets you are going to put in the trust.
- If you are planning to “hide” from potential lawsuits, it may define the choice of jurisdiction. There are offshore countries that protect you best of all in some cases. A practical example is the Cook Islands which we recommend to all clients from the USA as their laws are well-adapted to the tax policies adopted in the US.
- You keep your assets in some banks at present, and the location of such banks may also influence the choice.
Each jurisdiction has its peculiarities which make it best for your purposes. One universally best jurisdiction simply does not exist, and this is the reason why we recommend thinking about your top priority and sharing it with the consultant. Sometimes you may get an immediate answer: for example, your main concern is the protection against foreign creditors, and that’s where Belize and Nevis are the obvious choices.
Trust structure
Setting up a trust means that you transfer your assets to a legal entity that is going to manage them instead of you. That is, there are at least two players here: the Settlor (you as a trust creator) and the Trustee (the person who is actually entrusted to manage the property transferred to the trust).
Any legal entity has a beneficiary, and trusts are no exception. It is usually the Settlor who appoints the beneficiaries, and he or she may be the sole beneficiary as well.
Some trusts also have a Trust Protector (a third person that makes general supervision over the Trustee’s management activities and can advise the latter on some questions related to the trust).
All the relations between these players are laid down in a document called the Trust Deed. It determines the scope of the Trustee’s powers, the Protector’s authority, and the general rules that the Trustee should follow.
Offshore trust: advantages
Setting up a trust in an offshore jurisdiction has a lot of advantages! Here is our full article on the risks and benefits of setting up a trust. And here are the main advantages that may be of interest to you:
- The assets you keep in a trust and your identity will remain absolutely confidential. If this is your top priority, tell the consultant about it. There are some jurisdictions whose public registers contain no information whatsoever about the real owner of assets, and the property belongs to the trust according to the documents.
- Zero tax rates. On the whole, the trust is exempted from taxes. However, there are two situations when it becomes liable: upon profit distribution among beneficiaries and when the assets are inherited. Tax liabilities may also be imposed from the outside in the case of real estate taxed according to the applicable laws of the country where it is located.
- Planning your inheritance. A trust is often used as a convenient alternative to the will: it prevents any arguments between the heirs or even lawsuits that they may file. A trust offers different methods of dealing with inheritable property. You can set the date when you want the heir to come into the property, or you can decide to pay lifetime alimony to any heir of your choice.
- Your assets will have reliable protection from creditors and decisions made by foreign courts. The best jurisdictions that will fit this purpose are Nevis, Belize, and the Cook Islands. They set considerable barriers that your creditors will hardly overcome: the decisions made by foreign courts are not recognized, and they have to start the proceedings all over again by paying a considerable amount in advance (about $ 100,000). This will deter most of those who wish to lay hands on your wealth. And if you set up an irrevocable trust, you will make it absolutely impossible for creditors to get to your assets.
- Your relatives and ex-spouses will have no access to your assets. All you need to do is to think well of the rules set in the Trust Deed to achieve this goal in the most efficient way. In the most general sense, your assets will be protected perfectly well in the same way they are protected from creditors.
- Trust is a convenient instrument for capital accumulation. The structure can act as the owner of companies and bank accounts and also take part in profitable investment projects. It can be used to accumulate assets that come from different sources – and then distribute them to the beneficiaries appointed in the Trust Deed.
- No more political risks. Who knows when the situation in your home country may turn for the worse? All you need to do is diversify your assets to be ready if any black swan occurs.
Follow the above links to find a good consultant today and protect your capital wisely!